Eaton CEO: Hybrid trucks deliver, big-time

August 3, 2009

Crawling, stop-and-go traffic is an annoyance to most drivers. To Eaton Corp., a $15-billion a year FORTUNE 500 company based in Cleveland, it’s a business opportunity.

That’s because, as anyone who has driven a Toyota Prius knows, the stopping and starting, braking and accelerating required in traffic is ideal for hybrid-electric engines, which capture energy from brakes and turn it into electric power.

President Obama checks out a hybrid truck

So Eaton, which has been developing electrical and hybrid power systems for trucks and buses for more than 20 years, is now building a nice business around selling hybrid power systems for commercial vehicles. On a California trip last spring, President Obama got a sneak peak at a plug-in hybrid electric utility truck with a power system developed by Eaton.

According to Alexander M. “Sandy” Cutler, Eaton’s chairman and CEO, the hybrid truck industry—while much smaller, and not nearly as visible as the hybrid car business—is finally taking off.

“It’s ramping quickly, and that’s encouraging,” Cutler told me in a recent telephone interview, largely because the technology, economics and policy are coming together. Delivery trucks are the early adopters, but others will follow, he says: “If you think about a truck that’s going make to hundreds of stops a day, they’re going through the acceleration and deceleration process. That’s right when hybrids hit their sweet spots.”

Customers include FedEx, UPS, Coca-Cola Enterprises, PepsiCo and Wal-Mart, all of whom own and manage big truck fleets.

What’s interesting about this story is that its impact goes well beyond a single company going “green.” If hybrid-electric power systems for trucks and buses achieve economies of scale, they could transform an industry—replacing thousands of diesel-powered vehicles, dramatically reducing fuel consumption and curbing greenhouse gas emissions and other pollutants. It’s this kind of industry transformation that’s needed to address the dangers of global warming.

By itself, Eaton can’t change the industry, of course. But the company has had help selling its hybrids from a key customer, FedEx, and from the nonprofit, business-friendly Environmental Defense Fund.

Back in 2000, EDF and FedEx formed a partnership to promote hybrid-electric trucks. The idea was to use FedEx’s purchasing power to encourage truck manufacturers to produce the vehicles. Eaton was selected as the first supplier of the power trains, and a couple of prototype trucks were put into service in 2004 in Sacramento, with kudos from California Gov. Arnold Schwarzenegger. After FedEx took the lead, UPS, which has made its own substantial investments in alternative fuel vehicles, got into the game in a hurry.

Today, Eaton makes three distinct hybrid platforms, each of which delivers fuel efficiency and environmental benefits. They are:

Hybrid electric. These are the systems used by FedEx and UPS, and they are now available as a factory-built option at four major U.S. truck makers. Truck and bus manufacturers in Europe and Asia are selling them as well.

Hydraulic Launch Assist systems. The HLA system is designed for heavy vehicles, like garbage trucks, which make lots of stops and starts. Waste Management is an early customer. These engines are quieter as well as cleaner—a welcome development for anyone who’s heard a garbage truck screeching on the street.

Series hydraulic hybrid systems. Eaton’s getting subsidies from U.S. EPA and the U.S. Army to develop an “infinitely variable hydraulic drivetrain” which will improve fuel economy by 50 to 70%.

I don’t claim to understand these technologies—if you want to know more, here’s an explanation from Eaton’s website—but the particulars are less interesting than the idea that sustainability, broadly defined, can be an engine of innovation.

To be sure, Eaton was driven by economics, above all. “We started with the base conviction that we live in a world where fuel economy is increasingly important, and where carbon footprint is increasingly important,” Cutler says. So were customers like FedEx and UPS. But the Environmental Defense Fund and Schwarzenegger got involved because the hybrid trucks deliver substantial environmental benefits, too.

“As fuel prices continue to rise, fuel-efficient trucks are an investment every company should be making,” EDF’s Gwen Ruta says. “And since hybrids also reduce air pollution, oil dependency and climate change, they’re not only good for business but good for America.” (EDF tells the story here. Disclosure: I’ve done research and writing for EDF.)

As with hybrid cars, hybrid trucks cost more up front than conventional diesel-powered trucks. “Probably the payback is two to two and half, maybe three years longer than it would be on a traditional truck,” Cutler says. That depends on the cost of diesel fuel, of course.

Eaton makes the hybrid power trains at factories in Michigan and North Carolina, but Cutler says “a lot of competitors are developing around the world.” He says U.S. industry’s annual production of hybrid platforms is still below 2,000; it probably needs to get to 10,000 to achieve economies of scale. “The U.S. currently has the lead in commercial vehicle power trains,” Cutler says, in contrast to cars, where Japanese automakers are setting the pace. His hope, of course, is that American companies and particularly Eaton will stay out in front.

To listen to a podcast or read a transcript of my interview with Sandy Cutler, visit Greenbiz.com.